Republicans Can Privatize Amtrak If They Want To

Sept. 27 (Bloomberg) -- It is an election year, so
Republicans are once again calling to privatize Amtrak.

Presidential candidate Mitt Romney and his party say they
want private rail operators. The chairman of the House Committee
on Transportation and Infrastructure, John Mica, who tried last
year to push through privatization legislation, says he will
hold hearings once a month on Amtrak.

If these plans sound familiar, it is because President
George W. Bush tried to do the same thing. Yet Amtrak remains a
ward of the federal government, and Republicans are largely to
blame. If they are serious, they will learn from their earlier
failure.

The effort under Bush fizzled after the ouster of Amtrak
President David Gunn, a hardened transit executive with a
reputation for cost-cutting and efficiency.

Gunn and the Bush administration would have seemed like a
good fit. A self-described economic conservative, he made a name
for himself in Philadelphia fighting regional rail unions during
a 1983 strike that shut down commuter-train service for months.

Early in his tenure as president of Amtrak two decades
later, Gunn says he approached the Transportation Department
with a request to address problems with Amtrak’s labor
agreement.

He was bothered by contracts that reinforced what are known
as craft union restrictions, among other union work rules, the
same issues he took on two decades earlier.

Low Productivity

“In the maintenance shops at Amtrak,” Gunn explained in a
recent interview, “you’ve got a variety of crafts. Electricians,
machinists, sheet-metal workers, carmen.” But because of work
rules written into contracts and union divisions, they are not
allowed to do one another’s jobs, even when they are perfectly
able.

“You could have a carman,” he said, referring to one of the
least-skilled craft designations, “who’s a space technician out
of the Army, but he can’t touch anything electrical or
mechanical. So he’s stuck banging on wheels and doing the heavy
bull work.”

But the administration rebuffed Gunn. “They told me they’re
not going to touch that with a 10-foot pole!” he said.

After Gunn was fired in 2005, he offered to come back to
help with Amtrak’s labor negotiations, but the railroad’s board
declined his offer.

In December 2007, a presidentially appointed panel set up
to arbitrate the dispute recommended to deny Amtrak’s requests
to make broad work-rule changes or give the company more
latitude to outsource its work. The board chided Amtrak for not
demonstrating any “proof of compelling operational need for any
of these work rule changes.”

Instead of aggressively pursuing reform within Amtrak, the
Bush administration came out with a much more ambitious
proposal: no more federal subsidies.

The tracks, rolling stock and responsibility for financing
service would be handed to the states, according to the
administration’s plan. Rail corridors would be spun off through
interstate compacts such as the Port Authority of New York and
New Jersey.

The hope was that some state consortia would then contract
out to a private provider, as is the case in the U.K.

Michael P. Jackson, who was a deputy secretary of
transportation under Bush, was one of those who said this more
immediate approach would be the best path to reform. Regarding
Gunn’s labor requests, Jackson said in an interview, “It was
difficult to imagine under the circumstances that we were going
to get substantial legislative reform.”

Bush Approach

“The administration took a more aggressive reform path,” he
continued, “rather than trying to nip around the margins. What
we were trying to do was a more substantial reform, and in the
end it failed.”

Jackson agreed with Gunn that labor reforms, among others,
were needed, but thought that piecemeal change would never be
enough to challenge the established interests -- “freight
railroads, labor unions, passengers, politicians.”

“My assumption was that these types of issues would have
been thrown on the table and addressed in ways that were more
creative than could be done in an annual appropriations bill, or
in a once-in-a-blue-moon authorization bill.”

Jackson compared the reform attempt to his experience
ending a freight railroad strike during the Bush administration:
“When you have an artificial crisis created around dramatic
change, all sorts of things come into play that you didn’t think
could.”

Somewhere between Gunn’s gradualist approach and the
Republicans’ full-throated drive for privatization lies the
Japanese experience.

Like Amtrak, Japanese National Railways, or JNR, was a
struggling public corporation. It failed to make even operating
profits on its most robust intercity railway routes. Ticket
prices were high, and service was poor despite the yearly
subsidies.

Japan’s suburban railways, on the other hand, showed what
was possible with good management. They remained in private
hands after World War II, and were renowned for their efficiency
and low fares. They made profits for their private shareholders
while their state-owned intercity counterparts were bleeding
cash, not unlike the contrast between American freight railroads
and Amtrak today.

The road to private ownership for JNR’s three successor
companies on Japan’s densely populated main island was a long
one, though. It began with labor reforms in the 1980s, and
wasn’t completed until the last shares were sold to the public
in 2006. Full privatization was the goal, but steps similar to
what Gunn pushed for came first.

JNR was spun off into seven different companies in 1987,
but labor revisions began even before that. JNR’s workforce was
slashed by almost a third from 1980 to 1985, followed by a
shake-up of its unions.

Japan’s Lessons

The government held out on offering the first shares to the
public until the mid-1990s. It feared that “the dismal
reputation of the deficit-laden and inefficient JNR would affect
stock prices negatively,” according to a 2004 paper by a Kobe
University professor, Fumitoshi Mizutani.

Mizutani wondered “why private purchasers would not
recognize the potential for future efficiency gains and factor
them into the purchase price,” but it seems that political
uncertainty would have been seen as a barrier to private
interest.

Even after the labor reductions, the Japanese railroad
still required changes that threatened entrenched political
interests. Private companies couldn’t be sure they would
succeed. Still under government ownership, management was
overhauled and given a large degree of autonomy from meddling
politicians.

One difference between the U.S. and Japan, however, is that
passenger rail has always been an integral part of the Japanese
economy. Reform was imperative.

In the U.S., on the other hand, Amtrak is more likely to be
seen as a political punching bag than as a critical mode of
transportation. When asked by Fortune magazine what programs he
would cut, Romney lumped Amtrak in with PBS and federal-arts and
humanities endowments.

But as U.S. cities come back to life after generations of
decline, passenger rail is gaining respect. New private service
for the first time in a half-century is planned in Florida, and
even Texas has considered proposals.

The Republicans’ ideas about private rail have merit, but
if they want them to succeed, they will have to be patient. They
will need Democratic support, which they had while Gunn was
trying to fix Amtrak from within.

“If they’re going to go around talking about
privatization,” Gunn said, “they damn well better do a little
homework.”

(Stephen Smith is a writer based in Brooklyn, New York, who
covers land use and transportation. The opinions expressed are
his own. Read his earlier articles on mass transit costs here
and here.)